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Retirement Review gives strong views on hoarding of super

Fairness of outcomes in retirement income between middle and mid-high wealth cohorts has been a hotly debated topic in the media, including in Firstlinks. Now the Retirement Income Review has had its say.

The fairness argument runs along the following lines (using the case study of a $500,000 retirement balance and a $1,000,000 balance):

  • The household with $500,000 may have higher ‘retirement income’ than the household with $1,000,000 at retirement when ‘income’ is defined as age pension payments, asset earnings and franking credits.
  • This is unfair when the household with the $1,000,000 balance has made more contributions over time.

Income includes drawdown of capital

The Review didn’t just explore this issue: it was probably the most significant finding: households not spending down their capital in retirement is one of the greatest sources of inefficiency in Australia’s retirement system.

To understand the Review’s finding, we need to revisit the definition of ‘retirement income’. The Review’s interpretation is that retirement income should include not only the age pension payments, asset earnings and franking credits, but also the drawdown of accumulated capital.

Ultimately the term ‘retirement income’ has been mis-used and is probably not the correct term. It is really ‘consumption in retirement’, but that is more clunky. Alongside terms such as ‘investments’, ‘savings’, and ‘nest eggs’, we have a framing issue where people experience unnecessarily low living standards due to a restricted definition of retirement income.

A wide range of complex issues

The Review highlights a range of issues which compound this framing issue, including:

  • the system is highly complex
  • the understanding of how different retirement income sources interact is weak
  • little low-cost guidance is available to assist
  • consumers may interpret minimum drawdown rules as guidance
  • there are concerns about uncertain health, aged care costs and the possibility of outliving savings.

The Review addresses these concerns by identifying that health and aged care costs are heavily government funded and the age pension both provides a baseline and performs a risk management function.

The Review twists the commonly-raised concern about the high age pension taper rate (that the taper rate is too high and provides a disincentive to save for retirement) on its head. It says a high taper rate means that participation in the age pension is available readily to those as they drawdown or experience unexpected losses.

Broadly, it identifies that the retirement system could deliver better retirement outcomes if people spent down their savings more appropriately. System-wide equity issues arise when high balances, which receive significant tax incentives, are bequeathed. In its current state the retirement system is underperforming its potential. Indeed, the Review identifies that a system drawing down effectively at a 9.5% SG will produce better outcomes than one at a 12% SG drawing down as per current practice.

Pointers to solutions

The Review is not pointing the finger at individual households, rather it suggests a range of solutions are necessary:

  • Education to dispel some retirement myths, particularly around the definition of ‘retirement income’, the fear of healthcare and aged care costs, and the role of the age pension in retirement. This responsibility lands on many including Government, industry, consumer groups and media.
  • Better access to low-cost, accessible financial advice and guidance.
  • Superannuation funds need to improve retirement solutions which better manage the risks of outliving their savings, enabling their members to consume with confidence. I anticipate a Retirement Income Covenant will be introduced by Government to formalise this, but I have some reservations about the broad range of solutions which may result.

For those retirees who are actively engaged and living off a restricted definition of retirement income, the message is that you should most likely be experiencing higher levels of consumption. You can investigate further through talking to an adviser, your super fund or using a financial calculator such as ASIC MoneySmart.


David Bell is Executive Director of The Conexus Institute, a not-for-profit research institution focused on improving retirement outcomes for Australians. This does not constitute financial advice.


Allan Gardyne
December 10, 2020

The NZ universal super system works very well because - without huge bureaucracy - it gives Kiwis security and peace of mind, guaranteeing a modest retirement income while still providing them with the strong incentive to save and augment it, to attain a reasonable lifestyle.

My wife and I are 71, worked hard and saved hard, and at this stage we don't need help from the Aussie Govt. However, talk about drawdowns scares us because we have no idea what money we'll need for unexpected medical adventures. We also have no idea how long we'll live, so we don't know how much money we need.

December 06, 2020

Hi every contributor : You ALL make valid points and justify why you hold the opinions you do .......
BUT...... [and you knew THAT was coming ! ] ...."we" all belong to previous generations and have the
work-ethic and values of our parents instilled into us and "driving our success" in a large part !
The "up and coming generations" suffer from NO SUCH PRIDE or ILLUSIONS !
FREE MONEY , cheap housing , low interest rates forever......" When do we want it ? NOW ! "
and politicians WILL GIVE IN and provide it for them , in order to GET ELECTED !
A substantial reason for Adern's success in New Zealand is......the FREE PENSION MONEY for everyone !
And Biden in the USA.......the promise of FREE MONEY for everyone.........there is the promise of UBI
[ Universal Basic Income ] for everyone.....except the much hated 1% that own everything and who pay almost ALL THE TAX .......[ even though , strangely enough , a lot of those 1% are DEMOCRATS !!] .
With the increase of ROBOTICS and AI [ Artificial Intelligence ] there will be diminished opportunity for
unskilled or low-skilled employees at one level , and medium to highly skilled employees at another level.
This is where "fairness , social justice and equity" hit the road .......with the UBI.....and this from the party
preaching "equal opportunity" ! Then "they" can ALL happily subsist on UBI in "ideological equality".....or "poverty"......the terminology gets a bit blurred at this point !....but it will still BUY THE NECESSARY VOTES
at the next election , won't it ! Handy stuff to have ......welfare .
Welfare gives the bureaucrats the control they can offer to the politicians and , at no cost to the politicians , it's a basement bargain ! ........After WAS YOUR MONEY they are spending.
"We" all know it is dishonest , but who can really fault the logic [of getting some of your own money back] or resist the temptation that "everyone else" is helping themselves to the "magic pudding" or the munificent "money tree" ?
So.....I think that "we" may be the last generation that enjoys the term "self sufficient" with some pride !

Lisa Romano
December 02, 2020

Now in my early 60s, I have half my non home assets each in personal and self managed super. I draw an income from my own assets at just around the tax free threshold and the balance from a pension income stream from my own fund. This means the income is tax free, flexible and drawdown can occur from both sources. If the average lifespan of an Aussie woman is around 83-84, I plan to spend around $52,000 per annum, growing to $64,000 with inflation, between now and then. This means I can live out life either in my own home, or assisted living funded by selling my home. It’s enough for me to live comfortably and I’m incredibly proud to have achieved this situation by being self employed for 25 years. Good luck to everyone reading. Great newsletter.

November 29, 2020

A reasonable strategy once the Government imposes new imposts/taxes on larger SMSFs is to leave just enough in super to keep under the full aged pension asset limit. Next, use your super and existing home's sale proceeds to build a huge home (at least 5/5/4) without debt near the beach in Sydney or where 1 of your kids works long term. This home will appreciate. Then, offer your kid rent free life in their private 2nd or 3rd wing of the home. Get the kid to pay your household outgoings and living expenses (if cheaper than rent). The kids inherit the house, to rinse and repeat when you croak. You get to see the grandkids and live a tax free retirement with the aged pension and its perks, plus remaining super to spend at will. Death duties or gift duties remain a risk.

February 07, 2021

Like your thinking John

November 26, 2020

The suggestion of cashing in your superannuation when you reach the eighty years of age mark is not so easy as there will be penalties regardless. The aim is to be able to pass on your assets as per your will so it reaches the intended beneficiary tax free - Correct?

To cash out means there will be a Capital Gains Tax to pay and yes I am aware of the tax free component that is not effected. So anyone with the good fortune to be in the $1.6M category will see their accumulation fund being taxed after sale to prepare those funds to be in a tax free environment for your intended recipient. Either way, there will still be a price to pay!

I am 70 years of age and while I constantly read and hear about spending your super savings, there is only so much of anything that one can put in their home. As we age, retirees tend to spend less anyway as they have what they want and that has been achieved through being thrifty, sensible, and investing safely. Travel is off the agenda for a while due to the pandemic, and there is no need for a new vehicle every 12 - 18 months like many people do upgrade as maybe this is their way of spending their own me this is not a wise investment.

My income is from my super and I take the 5% which is compulsory in my age group and have never received an age pension.......that is becoming harder to obtain and the qualifications become more difficult in terms of assets and income. The number of self funded retirees has actually risen much to the Govt's delight.

With the Govt desperately short of $$ and ideas as to where else to extract monies from, rest assured that someone in Govt will be reading this very website and our comments and the day must come soon when the Govt swoops on all the retirees with large super balances and yet another tax becomes a part of the new way forward. The Grattan Institute has called for this for years and one day the call will be made.

I also need to ensure that should a serious health issue arise then I am able to fund treatment even though I have a health fund which increases each year in contributions but reduces in benefits.

All retirees have a lot to think about and the future is ours to face in a practical way as we have to plan that our assets will last the distance and we can live a satisfying life in terms of financial security and independence as well as try to satisfy those whom we leave behind at a time that is unknown to us all.

November 26, 2020


1] Costello eliminated tax in retirement AND removed the cap on maximum withdrawals.
2] Minimum withdrawals, increasing as you age, force you to draw down capital starting at 4% and increasing to 14%
3] At death the "taxable component" of your Super gets hit when paid to non dependents. We already have an inheritance tax on Super

The combination of these, leads to a strategy to extract the entire remaining Super the day before you die - zero tax. Timing is a bit tougher!

I would be staggered if Frydenberg and Hume have not figured that out and if, at least in part, some of the old rules will re appear

November 26, 2020

Currently, almost 80% of Australians retire living in their home (the equivalent of about $800k, on average, in tax free private savings if sold, albeit paid for by after tax income including interest on any mortgage), as well as a relatively small amount of their own savings in super funds ($200k plus), a promise from the govt for an indexed aged pension per couple over $30k plus pa (say equivalent to 16X$30k = almost $500k), health & home care (16*$20k)= about $300k, plus transport, electricity etc concessions.....and want to age and die at home... but some on average spend 2-3 years in aged care.....So multi millionaires at retirement (including the promise from younger Australians).....Ultimately, we wear out and then pass on and leave 90% of their own-wealth at retirement (mainly the house) as a bequest. ....The solution in the Callaghan Review is to unlock the private savings in the their home at a fair attractive rate. That's the cost/interest rate on a govt bond rate (1%) + small credit risk margin (0.1%) + operating costs (1% +) = sub 3% ...not 4.5 %from the current pension loan scheme or even worse at above 5% from industry super fund owned shadow banks......that's if retirees want to boost their spending now or make small bequests early with a warm hand, rather than a cold hand later from the grave. Unlocking the savings in your home at an attractive and fair cost is is a desirable option in the national interest; Good for retirement lifestyles and early small bequests.......and good for jobs and growth for younger Australians.... of course, this does not help retirees, that rent during both their working life and retirement; that needs other policies - like not making people pay compulsory super, if they would rather have a home etc etc etc

David Mee
November 26, 2020

As a retiree, I have saved up a good financial asset base in my SMSF. I actively manage it, buying and selling on the market. It has increased its value over 20 years, in spite of being forced to take increasingly large sums out each year as a compulsory pension, usually far more that I need. Mostly I reinvest it in the market Not having to pay exhorbitant management fees helps. I do not see why it is anybody else's business to dictate to me what I do with my money. I have no dependency on the state for an old age pension. I have always been a saver and old habits die hard. I expect to be able to give a good bequest to my children. My business and mine alone! In the French motto, liberty ranks higher than equity.

November 29, 2020

David, I totally agree with your sentiments. I have worked hard, saved diligently and invested wisely (sort of). I have spent enough in early retirement to enjoy life. Like you, I have no dependency on the state for old age and I draw down my pension from my SMSF at the regulated minimum rate. It is just enough for our targetted lifestyle and should leave a small bequest for our children (both of whom will need it as they age). Others should be pleased my wife and I are not burdens on the State.
I am fearful of the apparent easy pickings that some will see in my SMSF and work out ways to redistribute it to others. This is my biggest fear.

November 26, 2020

Transfers of super balances on death can attract a high rate of tax at time of transfer, depending on whether the recipient is a financial dependent for SIS purposes. Saving money in super in order to transfer it to the next generation is not a tax effective approach at all.

And what happened to the SKI concept - spending the kids inheritance?
And why so much sense of entitled to an inheritance on the part of the next generation? Which in turn leads to elder financial abuse?

If it's in super it's to be used for funding the retirement of the person who saved it. Or their spouse. Full stop.

And for those owning a home, that's to fund aged care. What's left after that can be carved up.

November 26, 2020

That's your opinion and you are free to organise your life like that. You should not press your views on the activities of others They should also be free to organise their life and money as they see fit.

November 26, 2020

Except for a sudden death, one normally has some impending warning and time. Simply cash out your superannuation before death and this avoids the hidden 17% “death tax” payable to a non dependent dependent. An Enduring Power of Attorney also helps with this.

November 29, 2020

" Simply cash out your superannuation before death": A couple will pay no tax on a combined taxable income of (2 * $30,593) = $61,186 / y. Amount of capital in a government guaranteed bank deposit earning $61,186 / y at 0.7% / y: =$61,186 / 0.7% =$8,740,857 Amount of capital in a 'dodgier than cash' not government guaranteed fund earning $61,186 / y at 3% / y: =$61,186 / 3% =$2,039,533 90+% of retirees do not need to keep funds in super retirement accounts, especially is there demise is expected within a few years. Most would be better off withdrawing all funds on reaching age of release, investing all but $400,000 (Sweet Spot) in their home and claiming the Age pension.

December 04, 2020

Agree with Dudley below...lots of elderly australians want to and will be better off living at home on aged pension and other benefits...and if they want to boost their retirement incomes take out the government's pension loan but this needs to be at a fair attractive rate - see Jeff comments above

November 26, 2020

Why the NZ universal basic aged pension system, with no asset or income test, works.

November 26, 2020

This NZ "nirvana" constantly pops up and it is nonsense.

To pay pensions as an individual or as a country, "sufficient capital" needs to be set aside - no escape. No magic Money Tree.
In Australia retirement saving is compulsory. In NZ it isn't and that means you are reliant on, a combination of your own savings AND future Governments to prudently set aside enough - "in your name" - effectively exactly the same amount of capital, BUT controlled by the Government

You may trust 20-30 years of future Governments to look after your old age. Personally I reckon that is la la land

Throw in ballooning debt and an ageing population, I will take self provision every day of the week


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